Expert bodies and industry associations repeatedly tell us that India’s best bet for the future is information technology (IT) with IT-enabled service industries, an industry that already has an export earning of Rs. 3,65,000 crore in FY 2002 (financial year ending March 2002). This earning represents 16 per cent of India’s total exports up from 14 per cent the previous year, and is also 29 per cent more in rupee terms compared to the previous financial year. And this despite the worldwide slowdown in the IT industry in particular and all industries in general. This has been revealed in an annual survey of software exports conducted by NASSCOM.

Yet another survey, the NASSCOM-McKinsey report released last month, projects software production growth to reach the target of 77 billion dollars, (excluding 10 billion dollars of e-commerce transactions) by 2008, as set in the IT Task Force report of 1999. The exports would be 50 billion dollars. What would this mean in concrete terms to the economy?

By 2008 the IT industry would employ four million people, probably making it the largest single industry. It would account for seven per cent of India’s earnings. Considering that IT jobs are high paying—Infosys with some 3,000 workers pays a higher wage bill annually than Tata Steel with some 30,000 employees—the multiplier effect of this employment would be enormous as most of the direct employment would be of educated people.

What is more encouraging, the historical growth rate of the industry since 1999 when the target was set, has been higher than what was required to achieve the target. Hence, between now and 2008, an annual growth of 34 per cent is what is required to achieve the target. Despite the general slowdown in industry, the growth in FY 2002 was 27 per cent in rupee terms and 22 per cent in dollar terms according to the NASSCOM annual survey. The industry has the unique distinction of an annual output of Rs. 48,000 crore which works out to 10.1 billion USD. "The industry has proven to be resilient and continued to record impressive growth," says NASSCOM president Kiran Karnik.

In this industry, exports (Rs. 36,500 crore = USD 7.68 billion) far outshadow the domestic software market of Rs. 11,500 crore (USD 2.42 billion). Exports to the U. S. A. are still above 60 per cent and dominant. But Electronics and Computer Software Export Promotion Council Executive Director D. K. Sareen says that this body, a wing of the Commerce Ministry, is trying to create a better spread of the market in South-East Asia, Japan and lately an aggressive thrust in emerging African markets.

A feature of this industry is that while Indian firms continue to dominate the software and services export market, the MNC segment has emerged as an important contributor with a share of 27 per cent. More and more MNCs are looking to India and are setting up their research centres here.

IT-enabled services (ITES) like call centres, medical transcription, customer relationship, geographic positioning services, etc. are emerging as huge employment creators. As much as 45 per cent of ITES output is in offices set up by MNCs. Out of the total exports of Rs. 36,500 crore in software and services, the share of ITES is already Rs. 7,100 crore. By 2008, says the McKinsey study, ITES exports would reach between 21 and 24 billion dollars. "We expect the ITES sector to grow faster than the earlier projections, given the increased interest in offshoring by global companies," says Karnik.

The McKinsey report says that ITES would add one million jobs by 2008 but many people in the industry believe that it could be much higher if the large plans of some of the industrial giants fructify. Reliance Infocom is stated to have plans to create call centres that would employ some one lakh people. At an average of 20,000 dollars annually per employee, ITES could add a trillion dollars to India’s GDP said Prof. Michael Dertouzos of the MIT Computer Lab two years ago at a meeting in Delhi. But even with an average salary of Rs. 10,000 the one million new jobs would create a disposable income of Rs. 100 billion (Rs. 10,000 crore).

In FY 2002, the IT industry as a whole added 92,000 new jobs and over 250,000 indirect jobs in the country, NASSCOM claims. It has created an FDI inflow of 800 million dollars rising to 1.2 billion USD by 2005. In the past six years, says NASSCOM, the IT industry has created a wealth of Rs. 90,000 crore. These are substantial sums.

Deepak Puri, chairman of Moser Baer, an IT hardware manufacturer, who took over recently as chairman of the Electronic and Computer Software Export Promotion Council, is planning a new strategy for boosting the IT industry. He says that the main weakness of this industry is in hardware where sales are not picking up as fast as they do in software. Actually, PC sales in FY 2002 went down from 1.88 million to 1.67 million. The sales of both Notebooks and Servers also was down in a year although we were promoting use of computers and software in different sectors of the economy. India is also very weak in hardware exports as domestic costs are higher than the landed costs of these items. Puri has plans to combine hardware and software into one package and launch such sales in markets abroad to strengthen the hardware export market. He also says that some major MNCs will soon set up shop in India, taking advantage of the new economic zones.

One reason why PC sales are down in an environment where IT usage domestically is increasing is that users are not able to articulate what their IT requirements are. And PC vendors are either trying to oversell their hardware or undersell the required software. With almost 50 per cent of the PC sales done through the gray market, the users are short changed extensively—some thing they discover only once they begin to use the hardware they buy. The widespread practice of pirating software that is needed to be installed in the PCs and Notebooks, is taking its toll with the pirated software failing to perform efficiently. Users also say that IT companies are not offering simple solutions that they can understand.

In the domestic sector, NASSCOM expects a significant increase in software usage in banking, finance and insurance, telecom and manufacturing. This also reveals that the Indian economy is modernising at a rapid rate. Most banks and financial institutions are switching over to online and remote banking operations where the customer is served where he is. The success of this depends on software and reliable telecom networks. Infrastructure companies are installing supply chains and just-in-time manufacture using software-based solutions. There is also a projected high growth rate in use of software in the power sector as more and more power utilities get privatised and the new private power distribution companies employ computerisation to improve their customer relationships and distribution arrangements.

In a companion citywide survey, NASSCOM has found that the National Capital Region has the largest number of software companies—53, Mumbai has 45, Bangalore and Chennai have 35 each. Among the top Indian exporters of software, Tata Consultancy Services (TCS) stands first with a turnover of Rs. 3,882 crore, Infosys is second with Rs. 2,553 crore, Wipro Rs. 2,298 crore, Satyam
Rs. 1,703 crore and HCL Technologies Rs. 1,320 crore. The exports of the other 3,100 companies in the sector are less than Rs. 1,000 crore. The MNCs with their development centres in India are also doing well—IBM Rs. 3,100 crore, Cognizant Rs. 2,712 crore and Oracle Rs. 2,000 crore among others. Over Rs. 16,000 crore of software exports are achieved by merely the first 10 MNCs with their development centres here.

On the issue of competition India is facing from other Asian countries in software exports, Puri says that we should not ignore the threat from China. Though India at present is far ahead of China, the latter is seeking to come abreast. It has imported 4,000 English teachers to train Chinese software engineers in English and neutralise India’s huge advantage in that language. China has also set up development centres in India to learn about Indian software-making. Infosys and Wipro are among the Indian software companies who are in China already. Indian training major NIIT was commissioned by the Chinese government to draw up training programmes for the Chinese in computer education. Karnik forecasts that the Indian software and services industry would grow in FY 2003 to Rs. 60,700 crore, the IT services exports growing by 22 per cent and IT-enabled services exports by 65 per cent. The domestic market would grow to Rs. 13,200 crore. We are going to see a further uptake in outsourcing in IT services abroad due to continued pressure faced by global companies. "This will ensure continued volume growth (despite flat budgets for IT investment) for Indian software and services companies," Karnik says.